Is There a Nexus between Poverty and Environment in Rural India?

This paper presents an empirical analysis of the relationship between rural poverty and environmental change using district-level data from South, Central and West India. Unlike prior works, this study puts the hypothesis of bi-directional link between poverty and environment to systematic econometric test by accounting for the joint endogeneity of poverty and environmental change. Environmental change is measured using a satellite-based vegetation index. Consonant with the dominant view in the literature, the evidence suggests that rural poverty spurs vegetation degradation. The results also indicate that the vegetation degradation spurs rural poverty but the magnitude of the effect varies across sub-regions classified on the basis of geographic and climatic factors. Thus these results provide evidence in support of existence of a poverty-environment nexus in the rural areas of the study region. * Department of Economics and Department of Agricultural & Resource Economics, University of Arizona, Tucson, AZ 85721. Phone: (520) 621-9741, Fax: (520) 621-6250, Email: [email protected] and [email protected]. Financial support from the Cardon Endowment is gratefully acknowledged. 2